The Frugal Fiduciary Small Business 401(k) Blog
Get the latest industry news, deadlines and tips you need to know to help tackle your fiduciary responsibility needs.
When an employer is looking to hire a financial advisor for their 401(k) plan, my advice to them is always the same – only consider financial advisors subject to a fiduciary standard of care. My reason is simple - only fiduciary-grade advisors are obligated by law to give impartial advice. In contrast, non-fiduciary advisors can give conflicted advice that favors investments with high commissions – making it harder for employers to keep their 401(k) fees in check. Generally, investment advisers are subject to a fiduciary standard of care, while brokers and insurance agents are not.
If you’re leaving your job for a new employer, you must decide what to do with your 401(k) account. To keep growing your savings tax-free until retirement, you could have up to 3 options: keep it where it is, roll it to a new employer-sponsored plan, or roll it to a personal IRA. It’s important to make an educated decision. Otherwise, you risk making your dream retirement more expensive than necessary.
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On March 15, 2018, the Fifth Circuit Court of Appeals invalidated the Department of Labor’s (“DOL”) Fiduciary Rule in a 2-1 decision. If the DOL does not request a rehearing within 45 days, the regulation will die. If that happens, the rules for 401(k) investment advice that existed before the Fiduciary Rule will return. That means some financial advisors – basically, brokers and insurance agents - will once again be able to give conflicted investment advice by recommending high-priced 401(k) investments that pay them rich commissions over less expensive - but comparable - alternatives on May 7, 2018.
Over the past decade, several high-profile 401(k) fee lawsuits and DOL efforts to implement a fiduciary standard for professional investment advice have put 401(k) fiduciary responsibility in the national spotlight. Unfortunately, this attention has done little to help employers understand and meet their 401(k) fiduciary responsibilities. This confusion is a big problem because employers risk personal liability when these responsibilities are not met.
Happy Holidays from the Frugal Fiduciary! As 2017 comes to a close, we looked back through this year’s blogs to find the most read.
Index funds not only offer 401(k) participants superior returns to comparable actively-managed funds net of fees, they are a clear and simple way for 401(k) sponsors to meet their investment-related fiduciary responsibilities. Sponsors need only select three or more prudent investments that allow plan participants to sufficiently diversify their accounts. Index funds are indisputably “prudent” by meeting their investment objective for market-correlated returns at reasonable fees.